Tuesday, June 7, 2011

This strikes me as absurd. All market action is certainly purposeful action, I'll agree - and understanding human pursuit of purpose is clearly going to help you understand market action. But there is a lot of purposeful action that is not market action at all.

Economics ought to restrict itself to market action in my opinion. Psychology has done well as a science of the mental and behavioral processes underlying all human action, and thus has a lot of good things to say to any scientist considering the human species. Economics has done well as a science of market action. Sociology and political science, despite a few gems, have faltered in important ways, so you see economists doing reasonably good work in both fields ("economics of the family", etc. for sociology - public choice theory for political science). We have good tools that any science of these types of action ought to consider using (and in many cases they have), but ultimately this is niche-filling.

But the fact that economic scientists have transferable skills that can fill these niches doesn't make these other purposeful actions "market actions". Market action is action in the context of networks of transactions. Not networks of interactions (that's sociology). Not networks of domination (that's political science when it is state domination, sociology otherwise). But networks of transactions. That is market action, and it's important not to fool ourselves into thinking that we're experts in more than what we are experts in. I know bits and pieces about the science of human domination of other humans, or the science of human non-market interactions with other humans. But mostly I know about market action.

Anyway - I thought this would be a fruitful comment thread. Why on Earth would anyone think that all purposeful action is market action? What exactly does "market" mean if that's the case?

5 comments:

I'll try to take a stab at what Mr. Catalan meant when he made that comment. [Insert standard disclaimer about how I do not actually represent his views on his behalf, and any error of interpretation is my own.]

I think the key is held in your last sentence, about what we mean when we talk of markets in this case. The term "market" can be, and often is, used in a broader meaning that trading money for goods and services. Behavior which falls outside that definition still reflects market-like characteristics. When making ostensibly non-market decisions, people must still weigh competing and incompatible options, and compare costs and benefits. People will then make their decision on how to act based upon their assessment of the (non-transaction) costs and benefits anticipated from each action.

By way of an example, my job requires that I wake up at four am every day. When I get home from work I often feel somewhat sluggish, if I'm not an outright zombie. I often feel an urge to take a mid afternoon nap. However, past experience has taught me that if I do this, when it comes time to go to bed I won't be able to fall asleep easily and I'll be even worse off the next day. MC > MB in the case of nap. So this action, while not a market action in the transaction sense, does resemble market transactions regarding scarcity, costs, benefits, trade-offs, incentives, etc. Every action we take has these characteristics, and as such every action can be called a market action.

Or, at least, that's what I think he was trying to say. If I'm wrong, I'm sure he'll correct me.

I think the key is whether we're talking about transactions. Exchanges. It doesn't have to be monetary exchanges. Economics does not mean "stuff that has to do with money".

I suppose it comes to this. I would strongly insist that we not attach "market" to everything. Markets are something very specific. Not all action - not the action you describe here - is market action.

But clearly principles of rational decision making under scarcity have a long tradition in economics and we economists have lots of tools that can be brought to bear in these non-market rational decisions.

So is economics a science of market transactions or a science of rational decision making?

The former seems to narrow and the latter seems far, far too broad (why not just call it "social science" and drop the rest?). Perhaps this is the solution - "economics is the science of human transactions, and it has operated historically as the provider of important analytic tools for other sciences of human action".

Because if you think about it, rational decision making that isn't tied to transactions isn't really covered by economists. Lots of economists study rational educational decisions (major choice, time-use, etc.) because these non-market decisions are intimately tied to other market decisions. On the other hand, few economists study rational romantic decision making. Why? Because the tie to market transactions is far less clear.

Market transactions have a special place in economics, although the tools of economics can be applied to rational decision making far afield of transactions.

I never suggested that economics is a science of "rational decision making." In fact, in my last response to the thread you link to, I explicitly state that economics is a science which studies the objective, causal phenomena which arise from the fact that human action is purposeful and human action is conducted in a world characterized by scarcity (which itself is a product of the fact that human action is purposeful and human action itself is scarce).

Economics deals with human action insofar that it finds its basis in human action, but I never claimed that economics deals only with human action. Obviously, human action doesn't deal with why humans act the way they do, nor does it deal with a history of human action. But, neither history nor psychology deal with the objective causal phenomena which arises out of human action -- this is firmly within the domain of economic science.

You say that economics should restrict itself to "market action", but this term is left undefined. Then, if this term is loosely defined by giving examples we find that these examples are wanting. For instance, you exemplify what Keynes meant by an end to demand, yet we find that in the examples you give there are still plenty of things to demand that are corollaries of the ends that individuals are pursuing.

Political science, I don't think, is a really category of sociology (where sociology should really be defined as the umbrella, in which all these other 'sciences' are really categories that study society). As far as my own experience with the subject goes, it's really a mixture of economics (or, poorly understood economics theory) and history. I think political science suffers from a poorly defined demarcation, and a poorly designed methodology for studying political institutions.

In any case, I think that your thoughts here suffer from really ambiguous terminology. It's not clear that even you understand the limits of your own artificial theoretical constructs.

For me, the market is society. What else could the market be? But, economics isn't the study of markets as a whole. Economics is a study of the objective causal phenomena which exist in said market/society.

Right Jonathan - all I said you said was that all purposeful action is market action.

You did say that, right?

re: "You say that economics should restrict itself to "market action", but this term is left undefined."

See the fourth paragraph. Market action is transactional action, usually in a network (although not necessarily) - i.e., usually markets are relatively thick or liquid, although there's no reason they have to be.

re: "For instance, you exemplify what Keynes meant by an end to demand, yet we find that in the examples you give there are still plenty of things to demand that are corollaries of the ends that individuals are pursuing."

I told you in the last post, and I'll tell you again here. We were talking about Keynes's discussion of MARKET demand. Of course people will always "demand" stuff. My wife "demands" attention from me. My cat "demands" food and play from me. I might demand a relaxing day sitting and contemplating. This is not market demand, Jonathan. There is no transactional, market relation. We can talk about the nature of these demands and how they are satisfied, but they are fundamentally different from the sort of demands we were talking about in the Keynes discussion. You have to use terminology carefully.

re: "For me, the market is society."

What does that even mean? You blame ME for vague terminology. A market is an institutional arrangement characterized by at least two human beings exchanging one thing for another thing. Typically markets are "thick" institutions - the exchange is made in the context of competing offers. That is a market. That's how people have always understood the word "market". What gives you warrant to wax poetic and call the market "society"? A bunch of people sitting around talking about their day - that's a "market"? People getting together to protest a government - that's a "market"? A family sitting and eating together - that's a "market"? Co-religionists worshipping together - that's a "market"?

1. You don't know what society is? The market and society are one in the same thing. Economics doesn't describe what a market looks like. It describes the objective causal relationships/phenomena that exist within that market.

2. So, economics doesn't apply to the objective causal phenomena which affect Robinson Crusoe on his island in his quest for survival? Only to transactions between people? Talking about an absurdity!

3. Your cat demanding food doesn't require the production/purchase of that food? Reading on a green lawn doesn't require that the production of that book, the production of that lawn? In order to be able to consume during leisure you need to produce. In order to accomplish ends you need to produce. The idea that there is the possibility of a cessation of "market demand" is absolutely ludicrous.